Introduction to disruption

In 1764 the world was introduced to the spinning jenny, the first mechanised process to produce yarn. With its invention James Hargreaves had started the process of mechanization that would shape the world as we know it. Yes, it had been a slow process to get to that point but as more advances were made due to inter-industry technology utilization the process sped-up rapidly.

The introduction of the steam engine to power mechanised yarn and fabric production meant that fabrics could be produced faster and cheaper than ever before and the abundance of sulphuric acid, owing to newly steam powered lead foundries, meant that cloth could now be bleached by chemicals other than stale urine.

This almost perfect feedback loop created technological spill-overs to the rest of the English economy, later the world, that would lead to the industrial revolution of the 19th century. Unlike any revolution up to that point the industrial revolution would, in time, touch every aspect of every human being alive whether directly (as a consumer or producer) or indirectly (as a person having to compete with a machine or someone with access to one).

While at the time it allowed for less labour intensive production of yarn and a more productive textile industry, the innovators of the day had to flee their home towns for their own safety as their inventions put families out of business. In fact, ever since the inception of the industrial revolution, labour unions have been at odds with the machines. Most notably at the turn of the 19th century as the Luddites used sabotage as a means of negotiating labour disputes.

These disruptive innovations also sparked waves of protectionism demanded by woollen cloth manufactures and printers who feared the cotton industry would consume their own. But as is the case in many disruptive industries and inventions, where consumers stand to benefit from innovation, it’s likely to find roots somewhere and as history has proved very little stands in the way of progress.

Industrial revolution 4.0

With the benefit of hindsight and the knowledge of how technical innovation can affect peoples’ lives in the medium to long term we can position ourselves, and our policies, to be more accepting and adaptive to the next revolution.

According to the World Economic Forum (WEF) the so-called “fourth industrial revolution” could generate huge advances in artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing, inter alia. These innovations all point to one certainty, that humans would no longer be needed at the production or services end of the economy. Their article points out “As automation substitutes for labour across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labour.” The implication is that return on capital would be far better than return on labour and is likely to force business owners and investors to turn to utilization of capital over labour or risk losing out to mechanised competition and higher returning investments.

The degree of disruption and labour displacement is often lost when the potential advances of the fourth industrial revolution is listed with sci-fi sounding concepts like artificial intelligence. What we need to keep in mind when considering these advances and their effects on jobless growth is that they don’t need to be perfect, they just need to be better than us.

Algorithmic, or high frequency, trading is changing the way stocks are being traded as well as the level of human involvement; modern finance is turning into what this article is calling “cyborg finance”. The same is true for law firms that have started handing over lower level tasks like discovery, that used to be done by paralegals and interns, to bots that can go through tons of data at a much faster pace without falling asleep or having to go for a coffee. Even smaller tasks in the medical industry are at risk of displacement.

While these jobs can be programmed using algorithms and syntactic analysis the real aim for automation engineers is to create bots that teach themselves how to do a job. It’s at this point that professional tasks are at risk of displacement, rather than jobs per se, but it also means that less professionals will be required. What we’re more likely to find as this scenario unfolds is one person receiving analytical output from a series of bots and compiling the final report/presentation/marketing strategy. This has potentially huge implications for the wider economy as it threatens the existence of the middle class; unfortunately discussing this falls outside the scope of this article, but I will attempt to continue this thought in a later edition of this series on disruptive industries.

Malthus was wrong and continues to be wrong

This rather bleak outlook on the ultimate utility of man has been under the spotlight before. In 1798 Thomas Malthus published a book An Essay on the Principle of Population in which he theorised that in time population will be checked by famine and disease, leading to a “Malthusian catastrophe”. The book was written at a time in Europe’s history where poverty was rampant and population growth was increasing. Taking a page from the foremost naturalists of the time Malthus’s theory seems sound, there’s a finite amount of resources to sustain an ever increasing population and if nature were to take its course the weak (or poor) would die out and the population would return to equilibrium, thus completing and restarting the cycle of misery.

During his life time however, huge advances were made in food production like the implementation of dikes and paddle wheels to grow rice in man-made paddies, the seed press and the crop rotation system which in some cases doubled crop yields; there were also major advances in animal husbandry that increased the size of livestock. At this time the United Kingdom parliament also started signing a series of Inclosure Acts which gave individuals the right to fence off land for private use. In the enclosed areas individuals had control over the factors of production and incentive to develop, test and implement more sophisticated means of production; for the first time people could fence off an area and dedicate it to growing wheat in neat rows without having to fear that their neighbour’s cattle will feast on their saplings.

What Malthus saw from these developments was policy failure rather than the clearly visible increases in crop yields. For him the Inclosure Acts reduced the resources available to the public, via an indirect means of eviction, and left the majority worse off to the benefit of a select few. While the select few were better off, their implementation of innovative agricultural practices also meant that there was more food available than ever before. More people could move to large populated areas to work for wages as food was more abundant and cheaper and less people were dependant on the land to sustain themselves.

We still stand to gain

Unlike 19th century Europe, today the problems we face are mostly man made: climate change, unstable states playing host to violent terror organisations, poverty and widening inequality, sustainability shortfalls and increasing water stress. While most of these problems can be attributed to the industrial revolution, directly or indirectly, we also need to recognise that due to the industrial revolution the earth can support a population of 7 billion people.

There’s no getting away from our technological advances and their impact on society, and if we mean to maintain our current population, and its growth rate, we need to continue to innovate. However, we can do so with the benefit of hindsight. We now know that in the short term innovations are disruptive to the status quo but historically in the long term it leaves everyone better off. Innovations and disruptive technologies also tend to have unexpected spill overs and can lead to advances and disruptions in other industries. Just think what the development of the smart phone has done to the transport industry, the banking industry, book stores and retailers, the entertainment industry, linguistics, even the way we file our taxes. But more so than ever these disruptions affect employment opportunities.

So while the average person leads a longer, healthier and arguably happier life than 100 years ago, we need to start thinking about how we are going to address the problem where people’s utility in the economy has severely decreased yet we have more resources to sustain ourselves than ever before.

Commenting area

The question is not whether through technological advances the earth can sustain a population of 7-11 Bn people, evidently that is the case. No the real question is whether the earth can sustain the same qualify of life and well-being as the average person in Switzerland/Luxembourg or Norway with its scarce resources and most importantly with its finite land-size. So, unless the author wants us all to have a life like in South Asia, the only solution is to reach a sustainable world population size of around 1.2 Bn which could be sustained by the 4th Revolution, since the Capitalists no-longer will need a poor sizeable reserve army, which could easily be replaced by robuts so that the remaining population all could have a equitable life in a world without inequality between highly skilled workers and blue colour workers (often migrants) doing in-humane work that in the 22nd century will be done by robuts.

Scarcity of resources has always been an issue, hence the inclusion of Malthus’ cycle of misery, but humans are immensely adaptive (even more so given the advances in technology). Can we sustain a scandinavian quality of life for the 7 to 11 billion people expected in the next 100 years? Probably; and failing that we can at least reduce the pressures of poverty. We also don’t know exactly what effects the coming industrial revolution will have, we might find ourselves in a situation where almost no one is required to do any work (including inhumane dangerous tasks) yet we’re still able to sustain our population.

Very interesting read. The immediate thought was that, just like how Malthus was wrong, perhaps we may not yet fully understand what the future holds 🙂 It is not a new concern that technology may displace jobs (yes it has already made some jobs obsolete) but it has made humanity better in many ways, but more importantly technology led to the creation of many more new jobs than it has eliminated, and it is this trend that I put my money on. This article http://goo.gl/ZpPzn2 may interest you, it talks about net effect on jobs technology has had.

Thanks for the link Tiego. I think that’s probably one of the best things that automation has done for humanity. We require less time and inputs than ever before to sustain ourselves leaving more time to spend on other pursuits.